Ambuja Cement/Ultratech Cement/ACC:
According to analysts, the cement sector will continue to report sub-optimal numbers for some more quarters. This is because the industry is staring at a slowdown in demand due to the fall in private sector construction. Even the government sector construction, such as new roads, has taken a beating. "Capacity utilisation in south India has already reached 50% and will come down in other parts as well," says Phani Shekhar, fund manager, PMS, Angel Broking.
Since the breakeven level for cement companies is at 75-80%, low capacity utilisation is bad news for the sector.
While analysts refer to the fall in demand and looming over-capacity, cement companies are increasing their prices. "The prices are going up, but there is no increase in volumes," says Pandey. "These are rising because of cartelisation and they won't be able to sustain it in the future," says Bhanushali.
The cost rise for inputs like coke, and the excise duty hike in the recent budget will put further pressure on the margins. Analysts are also concerned about the valuations, especially for the large-cap companies. This explains why three big cement firms, Ambuja Cements, Ultratech Cement and ACC, are in the analysts' hate list. As new cement plants can come up within 18-24 months, there is no point in buying above the replacement value, they argue. "Expect a further correction of 10-15% for stocks in this sector," says Shah.
According to analysts, the cement sector will continue to report sub-optimal numbers for some more quarters. This is because the industry is staring at a slowdown in demand due to the fall in private sector construction. Even the government sector construction, such as new roads, has taken a beating. "Capacity utilisation in south India has already reached 50% and will come down in other parts as well," says Phani Shekhar, fund manager, PMS, Angel Broking.
Since the breakeven level for cement companies is at 75-80%, low capacity utilisation is bad news for the sector.
While analysts refer to the fall in demand and looming over-capacity, cement companies are increasing their prices. "The prices are going up, but there is no increase in volumes," says Pandey. "These are rising because of cartelisation and they won't be able to sustain it in the future," says Bhanushali.
The cost rise for inputs like coke, and the excise duty hike in the recent budget will put further pressure on the margins. Analysts are also concerned about the valuations, especially for the large-cap companies. This explains why three big cement firms, Ambuja Cements, Ultratech Cement and ACC, are in the analysts' hate list. As new cement plants can come up within 18-24 months, there is no point in buying above the replacement value, they argue. "Expect a further correction of 10-15% for stocks in this sector," says Shah.
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On the contrary, prices remain firm and have actually edged up in certain pockets by as much as Rs 20 per bag. Cement despatches for the industry were up nearly 10 per cent in March while for 2008-09, it was 8.3 per cent indicating that while the real estate sector may not be using much of the commodity, there is undoubtedly a lot of construction taking place across the country.